Yahoo Finance Cautious Investors Not Rewarding Credit Intelligence Limited's (ASX:CI1) Performance Completely
With a price-to-earnings (or "P/E") ratio of 10.1x Credit Intelligence Limited (ASX:CI1) may be sending very bullish signals at the moment, given that almost half of all companies in Australia have P/E ratios greater than 23x and even P/E's higher than 42x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Credit Intelligence certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
See our latest analysis for Credit Intelligence
Keen to find out how analysts think Credit Intelligence's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Credit Intelligence's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as depressed as Credit Intelligence's is when the company's growth is on track to lag the market decidedly.
If we review the last year of earnings growth, the company posted a terrific increase of 288%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Looking ahead now, EPS is anticipated to climb by 57% during the coming year according to the only analyst following the company. With the market only predicted to deliver 28%, the company is positioned for a stronger earnings result.
With this information, we find it odd that Credit Intelligence is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Final Word
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of Credit Intelligence's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
Before you settle on your opinion, we've discovered 3 warning signs for Credit Intelligence that you should be aware of.
If you're unsure about the strength of Credit Intelligence's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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